Noncompete agreements should be banned, says President Biden

Joe Biden mentions hamburgers in his 2023 State of the Union address.

Specifically, the president wondered why the person who calls in your burger order might have signed a noncompete agreement to prevent them from working at a better burger restaurant — the kind of agreement that 30 million workers in the U.S. have. Biden vowed that the deal would be blocked.

That’s the current task of Federal Trade Commission chairman Lina Khan, who announced in January that the agency is proposing rules to ban the practice of forcing workers to sign non-compete clauses, which prohibit employees from working for their employer’s competitors for a certain period of time. after they leave work.

“Freedom to change jobs is central to economic freedom and a competitive and growing economy,” Khan said in a statement. “Noncompetes prevent workers from freely changing jobs, depriving people of higher wages and better working conditions, and depriving businesses of the talent pool they need to build and expand. By ending this practice, the FTC’s proposed rules will promote dynamism, innovation , and healthy competition.

If implemented, the proposed rules would give Americans more choice in the workplace and, by extension, higher wages. They can more easily work for rival companies or start their own companies with the fear of being sued. Such mobility can create a tight hiring economy, as workers have more options for open jobs.

News of the proposed rulemaking comes a day after the FTC sued three companies over non-compete clauses, the first time the agency has done so. It also comes after several other efforts the agency has made to protect competition, including lawsuits to block or eliminate mergers and efforts to modernize the Justice Department’s merger commission and rules.

The final rule will be issued after the remaining public comment period. Congress could review and disapprove the rule, which would invalidate it, but that would be rare and unlikely to happen with a Democratic-majority Senate. Once the rule becomes final, its legality will be tested in court.

The proposed rule follows calls from advocacy groups and the Biden administration to ban noncompetes, so it’s no surprise that Biden is praising the FTC today. His 2021 pro-competition executive order asked the FTC to use its authority to ban noncompetes, and consumer rights group Public Citizen made a similar request in a letter to the FTC last December. Some pro-consumer and pro-labor groups have called on the FTC for these rules during the Trump administration as well. Noncompete clauses have been banned in several states, including California, where some — but not all — prominent tech companies do not compete.

The FTC estimates the proposed rule could increase wages by up to $300 billion annually and affect 30 million Americans. A 2014 survey of economists found that nearly 20 percent of workers have non-compete clauses in their contracts. That number is more likely to be 50 percent for people in high-skilled and high-tech jobs, according to Matt Marx, a professor at Cornell University’s school of economics and management, who has studied noncompete agreements for 15 years.

“I entered the first noncompete in 1995 and did not realize what I was doing – and that is small for many if not most workers,” he said.

Marx added that the agreement doesn’t just specify that you can’t share certain company secrets, but is often interpreted more broadly so that people can’t use skills they had before working for the company – something to say. debilitating for high-skilled workers and entrepreneurs.

One person Marx interviewed, a woman with a PhD in speech recognition who had worked at Bell Labs for almost two decades, said she had to get a “random computer programming” job outside the field after working 18 months at the startup where she’d signed up. noncompete agreement.

“You’ve been in this industry for 20 years? Oh, well, sorry, you can’t do it anymore because you worked for us for two years,” Marx explained. “Tough luck, you’ve got to find something else to do.”

Detractors of noncompete clauses say the agreement prohibits workers from getting jobs with competitors or even in the same industry. In this way, they limit job mobility and prevent workers from applying for higher wages, since changing jobs is often a way for workers to get higher wages. The clause can be sent in a long job search or even “most career.”

Pro-consumer and pro-labor groups applauded the FTC’s move, as did the agency itself.

“The FTC’s action today to ban noncompete clauses will also provide a major boost to small businesses and entrepreneurship,” Stacy Mitchell, co-director of the Local Self-Employment Institute, told Recode. He added that noncompetes could make it more difficult for workers to leave their employers to start their own businesses that could compete with them.

Senator Elizabeth Warren (D-MA) praised the FTC’s actions to “protect workers” from “harmful contracts.” they tweeted“Noncompete clauses give companies unfair power over workers, allowing them to cut wages and benefits without fear of workers finding new jobs or starting their own businesses.”

Pro-employer groups like the US Chamber of Commerce argue that noncompete clauses can be pro-competitive because they protect “employer-specific investments in, training, and disclosure of sensitive business information to employees.” In a statement released shortly after the FTC’s announcement, the organization called the rulemaking “blatantly illegal” because it said the FTC did not have the authority to promote the rules. “When used appropriately, noncompete agreements are an important tool for fostering innovation and maintaining competition,” the Chamber said in an emailed statement.

Update, February 7, 11:25 a.m. ET: This story, originally published on January 5, has been updated with Biden’s State of the Union call to ban noncompete clauses.